Islamabad:
In a major concession in the United States to conclude a trade agreement, Pakistan exempt a 5%tax on Wednesday, which it had imposed a month ago on foreign technology and online platforms on the supply of digital commanded goods and services.
However, the tax exemption is not specific to only American technological companies. All foreign companies will benefit from the decision, which has been made at the request of the US administration, said a senior official of the Federal Board of Revenue The Express PK Press Club.
The FBR, the country’s tax perception authority, informed the renunciation on Wednesday, the Minister of Day Finance Muhammad Aurangzeb was in Washington to continue bilateral negotiations.
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“In the exercise of the powers conferred by article 15 of the law on the tax on the products of the digital presence, 2025, the federal government is happy to direct that the tax on the digital presence does not apply to goods and services ordered digitally provided outside Pakistan, by any person, who is responsible for tax under said law”, according to the FBR notification.
He also added that the tax will be canceled with effect on the first day of July 1, 2025 – the day when the budget for the new law and the financial year 2025-20126 has become effective.
A Pakistani delegation is currently in the United States to resolve the outstanding problems that hinder the bilateral trade agreement. This is the second visit to the Pakistani team in less than two weeks, aimed at concluding the trade agreement which can respond to American concerns and, in greater degree, protect the commercial interests of Pakistan.
The sources said that in the last series of commercial talks held between the Minister of Finance of Pakistan and the American Secretary of Commerce, Howard Lunick, the United States had raised the issue of the 5% tax imposed in the budget, what injured the giants of American technology.
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The derogation will lead billions of rupes of tax losses against Pakistan. The sources of the Ministry of Finance said that to respond to any concern of the International Monetary Fund, the American authorities can speak directly from the fund. The United States is the largest shareholder in the IMF, having just over 16% of participations.
The government had imposed the digital product tax of 5% on the grounds that cross -border electronic commerce by foreign sellers remained largely not accessible in Pakistan due to limitations of tax agreement requiring a permanent income tax establishment.
The FBR had informed the permanent committee of the National Assembly on finance that the erosion of the tax base of market courts occurred while foreign companies used digital platforms to sell goods and services without physical presence.
Many countries have brought taxes on digital services (DST) to recover tax rights based on a significant digital presence, in particular for services, and consequently Pakistan has offered to tax both digital provided goods and services.
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The permanent committee had also been informed that the digital advertising of foreign sellers, that is to say Temu on the Pakistani market by platforms such as Google would be imposed in coherence with Pakistani taxation rights.
Under the new law, payment intermediaries – including banks and financial institutions – had to collect the digital payments tax made to foreign sellers providing goods or services to Pakistan. They are also required to declare quarterly the income collected from international electronic commerce suppliers.
The Express PK Press Club said on July 19 that Pakistan had assured Google of the United States that it would be exempt from a new 5% digital tax and that parties of the company’s income will be imposed even on two thirds of the rates.
The government had promulgated the law on the product of the digital presence in June to improve the tax collection of offshore companies which had a significant digital presence but did not pay taxes on their income.
This month, the tax authorities assured the company that “Google is not the objective of the law on the tax on the product of the digital presence” and that the legislation was designed to cover specific cases of significant digital presence where there is no physical or registered commercial presence in Pakistan.
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Google has an important commercial presence in Pakistan and provides online advertising services, search engines, cloud computing, communication and entertainment. It is also the largest contributor to digital service tax payments.
Companies like Meta, Amazon, Microsoft and Netflix will also be the beneficiaries of the tax exemption. The promulgation of the Digital Presence Act has created undulations in Pakistan, especially among users of YouTube.
The Government had introduced the product of the digital presence, the law on taxed services digitally provided on the Internet or electronic networks, where delivery is automated and requires minimum or not human intervention, including music, audio interaction and video, cloud services, online software services, services provided by interpersonal interaction online files or any other online installation.
